Tom Steyer: Hedge Fund Billionaire's Foray Into Politics

Hedge fund manager Thomas Steyer was peeved. It was May 2010, and out-of-state oil refiners and the conservative Koch brothers were backing a California ballot measure designed to quash the state’s ambitious law to reduce greenhouse gas emissions. Steyer, a Manhattan native and Democratic donor, was convinced passage would damage California’s economy and environment. “I just got pissed because no one was stepping up,” he says.

So he stepped up, forming a committee with former Secretary of State George Schultz—a Republican through and through—to fight Proposition 23. Steyer threw in a $5 million donation—the single largest sum donated—and drove around the state to jawbone people in their back yards in places like Fresno, three and a half hours from San Francisco. He also worked the phones to get donations from the likes of Bill Gates ($700,000) and billionaire hedge fund manager Julian Robertson ($500,000). His efforts paid off: The proposition was soundly defeated and the emissions law remains intact.

Thus began the very public political emergence of one of the most successful, but certainly less well known, hedge fund managers of our time. Steyer founded and comanages the $21 billion Farallon Capital Management fund in San Francisco, one of the largest in the country. A former member of The Forbes 400, he returns to the list after a two-year absence with a net worth of $1.3 billion.

Steyer, 54, is spending as much as 20 hours a week (while still working full-time at Farallon) on a slew of efforts to build what he calls “the advanced energy economy.” He’s starting nonprofits, speaking with lawmakers and casting a net outside of California to get his message across. “I am a true believer that we have to change the way we generate and consume energy in the United States,” he says emphatically in an interview at Farallon’s downtown San Francisco offices, high above the bay.

Steyer’s coming out is all the more remarkable given his reticent and humble nature. East Coast private equity and hedge fund grandees might like to throw extravagant parties for themselves that get written up in New York newspapers. Steyer’s idea of a hot party is to host a dinner for local organic farmers. He refuses to drop names and strives to keeps his private life out of the press. He drives a 2005 hybrid Honda Accord, which his year-older brother, Jim, says Tom bought used. He wears a dated red wool plaid tie to work every day (he rotates among eight of the same design), and both times this reporter met him he sported a royal-blue beaded belt that might have come from a craft fair circa 1979. Steyer agreed to talk to FORBES only about his activism and philanthropy, not about Farallon.

Perhaps it’s no surprise that Steyer flies commercial (usually in economy) instead of on the private planes so often favored by others of his ilk. He and his wife, Kat Taylor, indulge themselves a bit in their housing. In addition to their home in San Francisco and a house at Lake Tahoe (the family likes to ski), the couple own a 2,000-acre ranch about 50 miles south of San Francisco in the coastal town of Pescadero (pop. 634), where Kat oversees efforts to raise and sell grass-fed beef and sustainable chickens, turkeys, a handful of pigs and produce. It’s nothing fancy. “There’s not even a nice bedroom,” complains Jim. Compare that to Donald Trump’s opulent Mar-A-Lago Club in Palm Beach.

“Tom’s not into money. He’s into achievement. He’s into changing the world for the better,” says Jim, who shared a bedroom with him growing up. “He’s the accidental billionaire.”

Steyer and his wife intend to give much of their fortune away rather than leave it to their four children, ages 17 to 23. In August 2010 the couple was among the first to sign on to Bill Gates’ and Warren Buffett’s Giving Pledge. “We want to leave our kids a different inheritance, an example of at least trying to lead a worthy life,” they wrote in an accompanying letter. They added: “Our pleasure and pride in life come from working with valued partners, not owning things or totaling up our net worth.”

Steyer grew up on Manhattan’s Upper East Side, the youngest of three boys. His father was a Wall Street lawyer, and his mother taught school in Harlem and the South Bronx. Dinnertime discussions often centered on making a difference in the world. Home life was far from stuffy—the kids were allowed to play ball in any room of their house. The boys went to elite private schools. For Tom that meant the Buckley School, Phillips Exeter Academy and Yale, where he graduated Phi Beta Kappa and was captain of the soccer team. Says Charlie Finney, a friend and business associate: “He has often been viewed, going back to third grade, as the smartest guy in the room—without being overbearing or obnoxious. That’s why he’s so successful. People said he was the hardest-working guy growing up, too.”

Out of college Steyer went to Morgan Stanley and worked on mergers and acquisitions for a few years before getting an M.B.A. at Stanford in 1983. Then he joined Goldman Sachs in New York, where he developed an expertise in risk arbitrage, and trained under Robert Rubin, who later became Bill Clinton’s Treasury Secretary (he also became a mentor to Steyer). In 1986 a friend convinced Steyer to move to San Francisco, where he joined private equity firm Hellman & Friedman and set up his own risk arbitrage fund inside the firm. That eventually grew into Farallon Capital (named after a group of islands 30 miles west of the Golden Gate Bridge), which now ranks as one of the ten most profitable hedge funds in the country.

Farallon racked up more than two decades of profitable returns, often in the double digits. Assets grew to $36 billion in 2008—and then came the financial crash. Farallon funds plunged 35% that year, according to industry sources. Most investors in the fund have reportedly been made whole; gains in 2009 nearly wiped out the losses in 2008. The fund is up around 4% through June this year, on par with so-called multistrategy hedge funds.

Along the way Steyer helped Jim build two nonprofits, Children Now, which focuses on children’s health and education, and Common Sense Media, which guides parents on keeping children safe on the Internet.

Steyer tiptoed into politics, largely by writing checks. In the 2004 presidential campaign he was among the top five donors to John Kerry and served as a delegate to the Democratic Convention. (In the 2008 election he first backed Hillary Clinton and later Barack Obama, for whom he was also a donor and fundraiser.)

On the night of John Kerry’s defeat in November 2004 Steyer was moved to do something more. “We were worried about the way the country was going,” he says. He decided to create a community bank with the idea of putting investment dollars in poor communities. Through a foundation he gave $25 million to start One California Bank in Oakland. Last year he funded One California’s purchase of the northwestern arm of Shorebank for roughly $20 million and merged the two to form One Pacific Coast Bank. It’s currently got some 480 loans outstanding; the average loan is $340,000.

His focus on the environment emerged a couple years ago. “Every time I looked up I thought, It’s inescapable,” he says. “It’s unpleasant. But actually this is something we can do a lot about.”

In 2009 Steyer and Taylor gave $40 million to Stanford University (where Steyer is a trustee) to start the TomKat Center for Sustainable Energy; they followed in 2010 with a $7 million gift to create the Steyer Taylor Center for Energy Finance & Policy. Then in early September this year they gave another $25 million to help open Yale’s Energy Sciences Institute, which will research renewable fuels. He is also beginning to create regional “energy innovation clusters” of investors, academics, clean energy companies and large corporations to help drive new technology and its adoption as well as enabling public policy. The first, in Ohio, was set to launch in mid-September.

Steyer hits the road regularly to preach the benefits of clean energy and jobs. In July, at the invitation of Los Angeles Mayor Antonio Villaraigosa, he talked before a satellite group of the U.S. Conference of Mayors held in Los Angeles. Jokes Steyer: “I was like a rock star, but the audience was all 50-year-old men.” In mid-August he spent four hours with California legislators in Sacramento one day, then flew the next to Colorado for an Aspen Institute conference on renewable energy, where he received an award for his Prop. 23 work.

In early September Steyer and his brother launched the Center for the Next Generation, a nonprofit that will develop public education projects to support clean energy, and will push for more investment in children’s health and education. Tom Steyer has committed $15 million.

He also put a relatively small amount of money, around $15 million, into green tech companies through venture capital firm Greener Capital, run by Charlie Finney. “As I like to say,” Steyer explains, “if you want to pay attention to a horse race, put two dollars on a horse and you’ll pay enormous attention to all 11 horses in the race.”

Is Steyer bound for political office? When I ask about a rumor that he might run for the U.S. Senate (Democratic Sen. Dianne Feinstein’s term is up in 2013, and she’s 78), he laughs and says, “Let me just say, I can’t imagine a worse job.” Yeah, but would he ever consider running for office? He responds in diplomatic language: “I would like to make a positive contribution. I am less interested in what happens to me.”